Table of Contents

  • This new report, “Challenges to the Network: Telecommunications and the Internet”, has been prepared by the ITU to coincide with the TELECOM Interactive 1997, Exhibition and Forum held in Geneva from 8th to 14th September 1997. The subject of the report is the Internet, and more particularly the relationship between the Internet and the telecommunications industry. The development and growth of the Internet is arguably the biggest single challenge that the telecommunications sector faces in the last years of the 20th Century. But it is also its biggest opportunity.

  • The telecommunications industry in the late 1990s is almost unrecognisable from that of a decade earlier. Ten years ago, mobile communications were restricted to a few consumers in a handful of countries; digitisation programmes were just beginning; and the majority of Public Telecommunication Operators (PTOs) were still state-owned monopolies. Today, all this has changed. Mobilephones are a familiar sight on the streets of the big cities of both the developed and the developing world; digitisation programmes are on schedule for being completed in most countries by the turn of the century, and a majority of telecommunication traffic now passes over networks which are privately-owned and operated. At the start of 1998, when the World Trade Organisation (WTO) Agreement on basic telecommunications comes into force, more than 90 per cent of the global market for telecommunication services will be in countries that either allow competition, or have committed to allow competition in the near future.

  • The spread of the Internet, which began in the United States in the 1970s and spread to other countries, via the academic community in the 1980s, has become universalised in the 1990s. Now some 171 countries and territories have direct access to the Internet (i.e., a network access point is located on their territory) and 24 others have indirect access (i.e., dial-up to a network access point located in a foreign country)1. The Internet does not yet quite have the geographical spread of the Public Switched Telephone Network (PSTN), but it is not far behind. But that is not surprising because, after all, the Internet is an overlay on top of the PSTN. While the Internet mainly uses leased lines, those lines are exactly the same mix of copper and fibre that is used to run the public telephone service.

  • Why should Public Telecommunication Operators (PTOs) care about Internet telephony? The short answer is that it is cheap. This makes it a potential threat to regular telephony, the core business of the PTOs. The next section explores the reasons for the affordability of voice over the Internet. Section 4.3 describes how Internet telephony works—what users need, what providers provide, and how telephony over the Internet operates—and what is necessary to make Internet telephony a market reality. The fourth section presents some of the effects of this new technology, especially on consumers. It describes how voice over the Internet could become a mainstream commercial reality. Section 4.5 analyses the different implications for ISPs, while section 4.6 analyses the implications for PTOs and their likely responses.

  • In July 1995, The Economist introduced its first ever survey of the Internet with the following statement: “The explosive growth of the Internet is not the result of a fad or a fluke, but the result of a digital free market unleashed”.1 Netscape founder Marc Andreesen, one of the few people to have exploited that digital free market profitably, has described the Internet as “... a platform for entrepreneurial activities- a free market economy in its truest sense. Its a level playing field where people can do anything they wanted to”2. Bill Gates, co-founder of Microsoft and someone who became seriously rich well before the Internet was considered as a tool for business expansion, describes a coming era of “friction-free capitalism”3 in which the Internet becomes a model for a new way of doing business.

  • There are two essential issues behind Internet governance. The first is how the Internet is currently governed. The second is how the Internet should be governed in the future. The latter issue has decidedly attracted more attention. There is often talk about, for example, whether taxation over the Internet should operate in a different way from other types of taxation, how governments should treat aspects of privacy on the Internet, and whether the Internet can be governed in such a way that balances concerns about security and freedom. These are all seminal issues. But they cannot be understood without understanding how the Internet is currently governed, and commentators often conflate the two subjects. This chapter describes first the present Internet and then moves on to look at how the Internet might soon be governed.

  • One of the premises of this report is the assumption that the telecommunications community and the Internet community are very different, but that they are both effectively sharing the same public network. Depending on your perspective, the Internet might be seen as a way of optimising the performance of the public network—by squeezing greater capacity utilisation out of the same pipes—or as a parasite which sits on top of the network and drains its life-blood without investing very much in its growth and development. Equally, depending on your perspective, the Internet might be seen as a great market opportunity—opening up, for the first time, the possibility to offer a range of interactive, multimedia services at an affordable price—or as a threat to the public network which is congesting its vital arteries and undermining its financial foundations.